The following is an illustrative example of a distribution from joint and separate estates where a winding up order and concurrent bankruptcy orders have been made following creditors’ petitions under article 8 IPO94 against a partnership and one or more members.

The principles used in this example will apply also to members' petitions under Articles 10 and 11 IPO94, or where there is a consolidation order under Article14 with directions to apply Article 8 or 10.

The various estate accounts have the following balances after the payment in full of all expenses pertaining to each estate by that estate. For the sake of simplicity, there is no interest due on the debts in any of the estates and also there are no postponed debts in any of the estates. 

 The available assets will first be applied in payment of the preferential creditors in each estate.

• Joint estate - all assets will be used on account of preferential creditors (leaving a balance due to preferential creditors of £2,000)
• Partner A - preferential creditors paid in full (assets still available = £6,000).
• Partner B - no preferential creditors.

The liquidator will then aggregate the remaining shortfall to all creditors in the joint estate (both preferential and non preferential = £40,000) and claim for this sum in both separate estates. The aggregated claim of the joint estate ranks equally with the non preferential claims in the separate estates but the preferential rights are not transferred from the joint estate to the separate estates. The liquidator will therefore submit a joint estate claim for £40,000 (£2,000 preferential creditors + £38,000 unsecured creditors) in both the separate estates of partners A and B.

The position will then be as follows:

• Partner A - A balance of £6,000 remains for distribution, and a dividend of 10p in the £ is payable (£6,000 / £60,000) to all creditors.
• Partner B - A balance of £4,000 remains for distribution, and a dividend of 8p in the £ is payable (£4,000 / £50,000)
• Joint estate - will therefore receive a dividend of £4,000 from Partner A (£40,000 X 10p in the £) and £3,200 from Partner B (£40,000 X 8p in the £, totalling £7,200).

 The position will then be as follows:

• Joint estate - assets of £7,200 are received in dividend payment and are subject to the usual order of priority on distribution from that estate. Thus the remaining £2,000 balance of preferential debts will be paid in full, leaving assets of £5,200 available for distribution amongst unsecured creditors. The final dividend payable to unsecured creditors of the joint estate will be approximately 13.6p in the £ (£5,200 / £38,000).

NOTE: It should be noted that where the winding-up order or bankruptcy order was made prior to 1 December 1994,  the case will be administered under the separate regime of the Insolvent Partnerships Order 1986.